The UK government has now published the Commercial Rents (Coronavirus) Bill 2021, setting out its latest proposals for dealing with rent arrears accrued due to the pandemic in England & Wales. The legislation is expected to come into force in March 2022, when the current rent enforcement restrictions placed upon commercial landlords are due to end.
Key points in the proposed legislation
1. It will apply only to protected rent debts, which exist where:
- The tenancy is a business tenancy within the scope of Part II of the Landlord and Tenant Act 1954 (for example, not a bare licence);
- Whole of part of the business, or the premises from which it operates, must have been required to close; and
- The enforced closure must have been between 21 March 2020 and 18 July 2021 in England, or 21 March 2020 and 7 August 2021 in Wales.
2. The parties will be required to refer the dispute to arbitration. The aim here being to preserve or restore the viability of the business of the tenant, subject to preserving the landlord's solvency. A balance will be sought between the needs of both tenants and landlords.
3. The powers of appointed arbitrators in relation to the arrears will be broad. They may grant relief from payment which may include:
- Writing off the whole or part of the debt;
- Giving time for the whole or part of the debt to be paid;
- Reducing (including to zero) any interest.
4. The parties will be responsible for their own costs of the process. The applying party will need to pay the arbitrator's fee on application, half of which will be subsequently reimbursed by the other party. The fee will be assessed on a sliding scale with reference to the amount of arrears; the Government hopes that this will make the process accessible to smaller business.
5. Referrals will be time-limited. Parties will only have a limited period of six months to refer the dispute to arbitration, from the date the legislation comes into force. Once this period has passed and no referral has been made, it is intended that the usual landlord enforcement procedures for unpaid rent will be restored.
6. During the six-month referral period, the current restrictions on landlord enforcement action will continue. To ensure effective utilisation of the arbitration system, further restrictions will also be introduced preventing landlords from bringing debt claims and drawing from security deposits.
Whilst the legislation should end the restrictions placed on landlords, marking a return to business as usual and creating a path to a certain end for many disputes, there will be challenges for landlords and tenants about how effective and accessible the process will be.
If you have any concerns or questions about the proposed changes and how they may impact you, your business or ongoing actions, please do not hesitate to get in touch with our real estate disputes team or your usual Brodies' contact.